Tom Bilyeu

And that number is almost certainly understating the problem.

Because the IMF's own financial stability report found that over 40% of private credit borrowers are now operating with negative free cash flow.

That's up from 25% in 2021.

For all of the hype in the economy about it booming, the reality on the ground is that things are trending rapidly in the wrong direction.

So what happens when a borrower can't make their interest payment?

In a normal market, that's obviously a default.

It is game over.

But in the private credit market, there's a trick.

The lender lets the borrower skip the cash payment and instead tack the interest onto the loan balance.

It's something called payment in kind or PIK.

The borrower doesn't pay.

The lender doesn't report a loss.

everyone's numbers look clean.

That's why the official default rate in private credit is reported at under 2%, but once you account for these restructurings and cute little extensions, analysts estimate the real number is more than double that at closer to 5%.

The gap between those two numbers is where this escalating risk is hiding.

Jamie Dimon, CEO of JPMorgan Chase,

the largest bank in the United States, didn't mince words on his October earnings call when he compared the problems building in private credit to cockroaches.

His meaning was plain.

When you see one, there are always more hiding in the walls.

Now, how did we end up back here?